On April 17, 2020, the U.S. Office of Management and Budget, part of the White House, issued guidance on how agencies should implement contractor reimbursement for employees granted leave to mitigate the COVID-19 pandemic. This is a major milestone in COVID-19 procurement developments, and a detailed analysis is available here.
The first phase of the COVID-19 pandemic brought a new wave of trade controls, as countries imposed new barriers against trade in vital supplies such as masks and ventilators. Now as the COVID-19 pandemic enters its next phase – as the disease recedes in some populations, and attacks others with new ferocity – a simple but critical question has come into focus: do trade barriers make sense in a pandemic?
One striking aspect of the pandemic has been the global supply chain needed for supplies essential to fight the virus. In an April 2020 report, the World Trade Organization highlighted the global sources for medical supplies, and the World Health Organization and other international organizations have stressed the need for international cooperation in fighting the COVID-19 pandemic.
Concerns over new protectionism in the United States arose earlier this year, when the Trump administration signaled that the United States might withdraw from the WTO Government Procurement Agreement (GPA) in response to a GAO study which suggested that European exporters enjoy lop-sided access to the federal procurement market. Lucian Cernat and Zornitsa Kutlina-Dimitrova, trade economists at the European Commission, have responded that the U.S.-EU trade balance in procurement, if read broadly, is actually much more favorable to the United States.
Robert Anderson (previously at the WTO) has pointed out that leaving the GPA could do permanent damage to the postwar trade regime in procurement, and Jean Heilman Grier (a former staffer at the Office of the U.S. Trade Representative who has written extensively on the GPA) has argued that leaving the GPA could severely disadvantage the United States in future trade negotiations. [Editor’s note: Robert Anderson’s assessment of the flexibilities already available to member parties in times of crisis is available here: Keeping markets open while ensuring due flexibility for governments in a time of economic and public health crisis: the role of the WTO Agreement on Government Procurement (GPA).] The U.S. business community (including the National Foreign Trade Council) has also lodged strong objections to leaving the GPA. Perhaps as a result of the many voices of opposition, the Trump administration’s initiative to leave the GPA has quieted, at least for now.
Another potential Trump administration initiative would impose new trade controls to force pharmaceutical companies to bring their production to the United States. This initiative, long pressed by senior White House trade advisor Peter Navarro, appears to have faded as well.
The Trump administration instead took a focused approach to trade controls, when on April 10, 2020 the Federal Emergency Management Agency imposed export controls under the Defense Production Act on personal protection equipment, including certain masks and gloves. At the same time, companies such as 3M were being savaged by President Trump for shipping emergency supplies abroad, even when (as 3M made clear) those shipments might be critical to other countries’ efforts to fight the pandemic.
But even the Trump administration’s most aggressive export controls, such as those aimed at Iran, Cuba, Venezuela and other sanctioned nations, will not necessarily block life-saving supplies. As Tom McSorley and his colleagues have pointed out, exceptions built into the U.S. export regime will still allow humanitarian supplies to reach Iran and other nations under U.S. sanctions. The FEMA ban on exports of PPE also allows for exceptions – under FEMA’s approval – for humanitarian purposes, Tom McSorley and his colleagues have noted. [Editor’s update: FEMA’s exceptions to the export ban — including a blanket exception for shipments to Canada and Mexico — are published in draft form here.]
Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on vital items in short supply, from N95 masks to bleach. In normal times, the U.S. General Services Administration, which runs “schedule” contracts used by federal agencies for tens of billions of dollars in annual sales, complies with the Trade Agreements Act (TAA) by banning supplies from countries that have not entered into free trade agreements with the United States (“non-TAA” countries). Because of acute shortages in fighting the pandemic, however, GSA has temporarily lifted that ban for certain supplies. [Editor’s note: Jean Grier’s summary of this development is at Perspectives on Trade: ‘US Temporarily Lifts Procurement Ban’] The Trump administration’s abrupt volte face suggests that trade controls can raise dangerous barriers in times of crisis.
Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on federal procurements of vital items in short supply
U.S. trade controls in the pandemic are part of a broader trend around the world, as nations try to reshape trade flows to husband supplies needed to address the COVID-19 disease. Those trade controls, which Simon Evenett of the University of St. Gallen calls “sickening-thy-neighbor” measures, raise serious humanitarian and political questions now that some countries no longer need equipment that is desperately sought in other nations. With the pandemic receding, New York will now share ventilators it no longer needs with Maryland and Ohio; should the United States do the same for Senegal, or for new hotspots such as Sweden? And what role should international institutions, such as the WTO, the World Bank and the OECD, play in facilitating international cooperation rather than trade barriers – global cooperation, as Laurence Folliot Lalliot has argued, that will be needed to save lives. (An update: EU Commissioner Phil Hogan on April 16, 2020 called for a temporary international ban on tariffs for vitally needed COVID-19 supplies, and made clear that European Union cannot “on-shore” its manufacturing in the long term — it will continue to rely on an international supply chain for key medical supplies.)
Solving that puzzle – weighing protectionism in the pandemic – may require a new set of policy metrics. Zornitsa Kutlina-Dimitrova of the European Commission has argued that trade restraints make little sense when weighed against the secondary economic effects (e.g., the industrial atrophy, the isolation from innovation) that trade controls cause. Her research bears special attention now, when human lives – not just dollars – weigh in the balance.
Editor’s note: Join a free GW Law webinar on Tuesday, April 21, 2020 at 9:00 ET/14:00 UK/15:00 CET/21:00 CST. Simon Evenett, Robert Anderson, Jean Heilman Grier, Tom McSorley and Zornitsa Kutlina-Dimitrova (invited) will convene before a worldwide audience to discuss “Protectionism in the Pandemic.” The program will be moderated by Laurence Folliot Lalliot, Vanessa Sciarra of the NFTC and Christopher Yukins. Program information and registration.
Please join the National Bar Association, in conjunction with George Washington University Law School’s Government Procurement Program, for a one-hour webinar on federal contracting and the COVID-19 pandemic — a review of emerging issues, in law and business, for thousands of federal contractors and their employees.
Thursday, April 23, 2020, 9 am Pacific/10 Mountain/11 Central/12 noon Eastern
Register here
Topics will include:
Panelists:
Michelle Coleman, Counsel, Crowell & Moring
Danielle Conway, Dean, Penn State Dickinson Law
Dominique Casimir, Partner, Blank Rome LLP
Judge Jeri Somers, Chair, US Civilian Board of Contract Appeals)
Michael Bennett, Evans & Chambers Technology, LLC; nominee, Board of Governors, USPS
Liza Craig, Counsel, Reed Smith (invited)
Moderators: NBA President Alfreda Robinson (GW Law School) & Christopher Yukins (GW Law School)
Previous Webinars
Register here
Tuesday, April 21, 2020, 9:00 ET/14:00 UK/15:00 CET/21:00 CST
Governments around the world are imposing trade controls that may cut off access to life-saving equipment. GW Law held an open webinar on protectionism in the COVID-19 pandemic – the barriers to imports and exports that threaten to deepen the pandemic. The program materials are below.
Background article (with key resources) for this webinar
The panelists discussed:
Presented with the kind cooperation of the National Foreign Trade Council
Simon Evenett, University of St Gallen (Switzerland) – Bio COVID-19 Trade Report
Robert Anderson, Hon. Professor, U. Nottingham (WTO-retired) – Bio – Works – Keeping markets open while ensuring due flexibility for governments in a time of economic and public health crisis: the role of the WTO Agreement on Government Procurement (GPA) (draft – forthcoming, Public Procurement Law Review)
Jean Heilman Grier, Djaghe Consulting (Washington DC) – Bio Works – Perspectives on Trade: ‘US Temporarily Lifts Procurement Ban’
Tom McSorley, Arnold & Porter (Washington DC) – Bio Humanitarian aid US Export Controls
Zornitsa Kutlina-Dimitrova, European Union – DG for Trade – Bio – Works
Moderators: Christopher Yukins, GW Law School; Vanessa Sciarra, National Foreign Trade Council; Laurence Folliot Lalliot (University of Paris Nanterre (joining from Dakar))
Resources on COVID-19 and Procurement
Fighting Fraud in COVID-19 Sourcing – Webinar – April 9, 2020
Straight Talk: Emergency Procurement in the COVID-19 Pandemic – April 2, 2020
Public Contracts and the Coronavirus – Online Colloquium – March 24, 2020
A new threat has emerged in the pandemic: fraud in the supply chain for critical COVID-19 supplies. Governments the world over are fighting back against price gouging and defective supplies. What tools are available, and will they work? Join a free one-hour webinar with GW Law, as experts discuss these critical global developments in anti-corruption and procurement.
April 9, 2020, 9 am ET/15:00 CET/21:00 CST
Presented with the kind cooperation of the International Anti-Corruption Academy (IACA)
Register here
Panelists
Michael Bowsher QC – Monckton Chambers / King’s College, London (London)
Thomas Hendrix – GW Law / Decisive Point (New York)
Aris Georgopoulos — University of Nottingham (United Kingdom)
Rocco Burdo, Head, Analysis and Research Section, Intelligence Office, Anti-Fraud and Controls Department, Customs and Monopolies Agency (Italy)
Jessica Tillipman — GW Law (Washington)
Mihály Fazekas – Central European University (Budapest) DIGIWIST Report
Paul Whittaker – OECD (Paris) OECD – Corruption in Procurement
Moderators: Christopher Yukins, GW Law School (Washington); Jean-Bernard Auby (Professor emeritus, Sciences Po Law School (Paris)); Gabriella Racca (University of Turin); Laurence Folliot Lalliot (University of Paris Nanterre (joining from Dakar))
Resources on COVID-19 and Public Procurement
In an April 1, 2020 letter to U.S. Secretary of Defense Mark Esper and Under Secretary of Defense for Acquisition and Sustainment Ellen Lord, a bipartisan group from Ohio’s congressional delegation (including both senators) asked the Defense Department to provide more guidance to line contracting officials, so that they can deal effectively with contractors in the COVID-19 crisis. The letter noted:
We appreciate the guidance issued by the Office of Management and Budget (OMB) within the last two weeks as well as the memorandum released by Under Secretary Lord on March 20, 2020 regarding designation of the Defense Industrial Base as Essential Critical Infrastructure. Despite the prompt release of this instruction, we are concerned that guidance to the defense contractor workforce remains ambiguous and lacks uniformity in application.
The letter asked for specific guidance on handling employees (allowing them to telework, for example), and on how to seek financial relief (if necessary) under Section 3610 of the CARES Act:
In the event working on-site or telework is not possible, direct contracting officers to exercise the available authorities found in OMB Memorandum M-20-17 [NB: probably should be M-20-18] and Section 3610, Federal Contractor Authority of the CARES Act of 2020 to maintain a source of cashflow to keep this vital workforce intact and prevent avoidable reductions in forces during this crisis.
The letter noted that the DoD policy of leaving these decisions to the discretion of individual contracting officers — a potentially critical problem in deploying contractor relief under Section 3610 — had created uncertainty in a time of crisis:
Thus far, the DoD policy of delegating key decision-making authorities to the lowest levels has caused the contractor workforce great concern because of uncertain, and often conflicting guidance. The defense contractor community needs stability and continuity in this time of crisis and these steps will enable contractors to meet their obligations while protecting their workforce.
The Defense Department issued an initial memorandum on implementation of Section 3610 on March 30, 2020, and further guidance is expected.
Defense Department Issues Critical Memo on Contractor Reimbursement During COVID-19 Crisis
Because of the COVID-19 crisis, the U.S. General Services Administration (GSA) has delayed award of contracts that would allow federal officials to purchase directly from online commercial marketplaces, such as Amazon.com (if it received one of the contracts). The delay is noteworthy because many observers have asked whether allowing officials to purchase directly from commercial marketplaces could have mitigated supply failures in the current crisis.
The GSA announcement stated:
Commercial Platforms Acquisition Delayed
04/01/2020 12:12 PM EDT
As we all continue to adjust our professional and personal lives due to the extraordinary circumstances surrounding the COVID-19 situation, I hope this communication finds you well. First and foremost, I want to thank those who are providing critical support to the COVID-19 response. In addition to my role leading the Commercial Platforms initiative, my organization is heavily involved with providing IT Hardware and Services support to agencies across the country – as they work to implement telework procedures and other mission critical functions remotely.
Not surprisingly, GSA’s resources have shifted to support the COVID-19 response, and we’re having to prioritize certain activities to support the immediate needs of the federal government. As a result, the contracting team for the Commercial Platforms proof of concept has also had to shift their focus to COVID-19 response efforts. A delay is anticipated in the contract award to e-marketplace platform providers for the proof of concept. We will continue to move forward as we are able, recognizing that many of our acquisition professionals are prioritizing COVID-19 response work over other acquisition initiatives. Our goal is to make the contract award in the coming months.
Again, thank you for your ongoing support and understanding as we all navigate these extraordinary circumstances. This Interact group will continue to be a resource where you can receive up-to-date information about the Commercial Platforms initiative. You can learn more about GSA’s COVID-19 activities at www.gsa.gov/covid19.
– Laura Stanton
Deputy Assistant Commissioner for Category Management,
Information Technology Category
The U.S. Department of Defense has issued a critical memorandum on how contractor requests for additional contract payments in response to the COVID-19 crisis should be handled. The memorandum, issued on March 30, 2020 by Kim Herrington, Acting Principal Director, Defense Pricing and Contracting, noted that further guidance is expected.
Mr. Herrington’s memorandum discussed other possible grounds of contractor relief, such as stop-work orders. Most critically, his memorandum suggested that contracting officials, when considering contractor requests for compensation for additional costs (“requests for equitable adjustments”), should take into account the reimbursement for contractors contemplated by Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, discussed here, which President Trump signed into law on March 27, 2020.
Under Section 3610 of the CARES Act, agencies may in their discretion use any “funds made available to the agency” by Congress to modify any contract or other agreement to reimburse contractors for workers’ lost time up to September 30, if the contractor provides leave to its employees or subcontractors “to protect the life and safety of Government and contractor personnel.”
The Defense Department memorandum stated, in relevant part:
When reviewing requests for equitable adjustment, contracting officers are to take into account, among other factors, whether the requested costs would be allowable, allocable and reasonable to protect the health and safety of contract employees as part of the performance of the contract. Equitable adjustments to the contract or reliance on an excusable delay should not negatively affect contractor performance ratings.
In response to this national emergency, on March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES). Most notable within the act is Section 3610, Federal Contractor Authority, which provides discretion for the agency to modify the terms and conditions of the contract to reimburse paid leave where contractor employees could not access work sites or telework but actions were needed to keep such employees in a ready state (Attachment 1). Section 3610 is included for information only. DPC [Defense Pricing & Contracting] will provide implementing guidance for this section as soon as practicable.
The Office of Management and Budget, and many senior procurement officials of the Military Departments and Agencies have promulgated guidance similar to that in this memo regarding management of contract performance impacts due to COVID-19, many of which are available at https://www.acq.osd.mil/dpap/pacc/cc/COVID-19.html. They share the common theme that contracting officers are trusted and empowered to make the difficult decisions on appropriate adjustment to each contract. Both during and after the COVID-19 emergency, contracting officers must work closely with our industry partners to ensure continuity of operations and mission effectiveness, while protecting the continuing vitality of the DIB [Defense Industrial Base] that is so critical to our national security. Please ensure widest distribution of this guidance.
Editor’s note: These and other developments in COVID-19 contracting will be discussed in a free international webinar on Thursday, April 2, at 9 am ET.
On March 27, 2020, Congress sent to the President the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will provide over $2.2 trillion in government funding as the United States weathers the COVID-19 pandemic. President Trump promptly signed the Act, the product of a bipartisan compromise between the White House and Congress. Among many other forms of relief, the CARES Act provides funding to preserve public health and economic stability in various sectors, including federal contracting – a market sector that employs several million American workers.
The CARES Act stands as an important example for the international procurement community – a COVID-19 measure that both reduces health risk and drives economic recovery through existing public contracts.
The challenge now is for federal agencies to deploy the CARES Act’s funding, consistent with the goals of President Trump and Congress to use the CARES Act to —
In the next few weeks, procurement leaders from across government will need to implement the CARES Act. This article assesses some of the key questions those leaders will need to address. To make sense of the CARES Act, we will examine the Act and its purposes in an integrated way, looking both at Section 3610 (which authorized contractor reimbursement) and at other, parallel provisions of the Act. As the late Supreme Court Justice Antonin Scalia (an expert on statutory interpretation) explained:
“Statutory construction . . . is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme—because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.”
What does the CARES Act call on agencies to do for contractors? Under Section 3610 of the Act, agencies may in their discretion use any “funds made available to the agency” by Congress to modify any contract or other agreement to reimburse contractors for workers’ lost time up to September 30, if the contractor provides leave to its employees or subcontractors “to protect the life and safety of Government and contractor personnel.”
What work locations are covered for reimbursement? A contractor may recover only if its work location has been approved by the government – in other words, a contractor cannot “game” the government by unilaterally naming a work site (such as New York City or New Orleans) where it may be impossible to perform.
What if the contractor employees can telework? The government has strongly encouraged contractor telework, through policies issued by the Office of Management and Budget and the Defense Department. If employees can do telework from home, then reimbursement may not be available.
How will contractors’ reimbursement be calculated? Section 3610 is clear: the CARES Act allows agencies to reimburse contractors at “minimum applicable contract billing rates” for up to an average of 40 hours per week for paid leave (including sick leave).
What kinds of contracts will be covered? The CARES Act does not exclude any contract types, or provide detail on how different contract types should be handled. This may have been due to the rushed legislative process. S. 3548, the prior Senate bill, was introduced late the prior week, and then was blocked by a partisan battle in the Senate. The final language of the CARES Act reflects rapid legislative drafting, which naturally left gaps in the statutory language. Applying the maxims of statutory interpretation explained above by Justice Scalia, we can look to other sections of the CARES Act (discussed below), which also address contractor reimbursement but do not distinguish between types of contracts.
What’s to keep contractors from cheating ? The CARES Act makes relief under the Act subject to audit by the Government Accountability Office (Congress’ watchdog agency), and nothing in the Act suggests that contractors seeking reimbursement will be exempt from the criminal and civil fraud laws, debarment and exclusion rules that the government normally uses to block bad actors.
Although Section 3610 is silent on the mechanics of reimbursement . . . other provisions of the Act shed light on Congress’ intent.
How should contractors seek reimbursement? Although Section 3610 is silent on the mechanics of reimbursement — a detail normally left to the agencies — other provisions of the Act may shed light on Congress’ intent. Section 18006, for example, says that educational institutions that receive funding “shall, to the greatest extent practicable” continue to pay their contractors during the period of any disruptions or closures related to the coronavirus. Section 4113 explains how contractors in the aviation industry are to seek reimbursement by applying for an amount, “using sworn financial statements or other appropriate data, as to the amount of wages, salaries, benefits, and other compensation” that the contractors paid their employees. Section 19005 says that the Architect of the Capitol is to “continue to make payments provided for under . . . contract for the weekly salaries and benefits of . . . [contractor] employees” who are “furloughed or otherwise unable to work” during closures. Finally, Section 3610 itself explains that any contractor’s reimbursement will need to be reduced by the value of other credits the contractor receives, such as the tax credits afforded for employee leave under the Coronavirus Families First Response Act.
Taking these provisions together – “holistically,” to use Justice Scalia’s famous term – it becomes clearer how in practice agencies can afford contractors relief under the Act. What Congress and the President clearly expect is that contracting agencies will move quickly to advance the nation’s recovery – and Americans’ health – by allowing contractors to seek reimbursement for covered COVID-19 losses.
Editor’s note: On April 2, a free GW Law webinar will discuss these and other emerging international developments in COVID-19 emergency procurement, with panelists from government, business, economics and the law, who will join us from Europe, Asia, Africa and the Americas.
Thursday, April 2, 9:00 ET/15:00 CET/21:00 CST
Duration: 60 minutes
Governments’ procurements of critically needed supplies for COVID-19 – such as ventilators, masks, and other protective equipment – are collapsing in the face of a worldwide pandemic and global shortage. Join this free webinar with George Washington University Law School to discuss the emerging economic, business, political and legal aspects of what may well be the biggest procurement challenge of our time, with private and public experts from Asia, Africa, Europe and the Americas.
Register here
Topics:
Guests:
Moderators: Christopher Yukins, GW Law School (USA); Laurence Folliot Lalliot, University of Paris (based in Senegal); David Drabkin (USA)
Resources on COVID-19 and Public Procurement
Over 300 registrants from over 30 nations, across five continents
Program Video
